Understanding the Demand for Financial Services in Nepal

Nepal has a unique geography consisting of mountains, hills and Terai, which makes it difficult for any financial institution to provide financial services to every part of the country. Formal and informal financial service providers have been attempting to reach more customers at various levels and provide them with a range of financial services. Various studies have shown that people have become aware of different types of financial services, which suggests that people use them more now than they did in the past.

This research was an attempt to take a deeper look at people’s experience of existing financial services and their providers. In addition, it aimed to identify definitive indicators that would help to create a roadmap for the delivery of effective financial services in Nepal. The research covered 25 districts spread over five development regions. During the research, the team spoke to 1,019 respondents and tried to understand their perspectives on existing financial services using six different qualitative research tools: focus-group discussions, lifecycle analysis, financial sector trend analysis, seasonality analysis, product attribute ranking and relative preference ranking.

Financial service providers in Nepal include formal entities such as banks, microfinance institutions and co-operatives, as well as informal entities such as moneylenders, unofficial groups and friends. This research clearly indicated that preference for formal financial service providers has grown in the last 10 years, while the use of informal financial service providers such as moneylenders, relatives, friends and Dhukuti groups has decreased. Interestingly, the use of informal groups to meet financial needs (i.e., women’s, mothers’ and sisters’ groups) has increased in the past 10 years. Research also
highlighted seasonal patterns of income, expenditure, credit and savings of respondents, and the underlying reasons for peaks and troughs.

Respondents rated the following as key life events requiring financial assistance: children’s education, marriage in the family, illness of family members and celebration of festivals. When asked why these financial needs were not always fulfilled, respondents highlighted the following reasons, amongst others: high interest rates on loans, lack of need-based products, and long distances from service delivery points.